BUSINESS EYE: The China syndrome

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Alex Pratt

Published:09:00Saturday 24 October 2015

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Last week I was one of a few guests to be invited by Handelsbanken, “the fastest growing bank you’ve never hear of” to a breakfast event at their Aylesbury office all about the world economy. As these events go, it was pretty useful. I thought you might enjoy a few of my take-aways.

It seems the world economy is teetering on trouble, mainly because nobody is sure what is actually happening in China, which is rapidly becoming a major global player. If things were to go wrong there’s nothing left to throw at the problem.

At home we know people costs are guaranteed to rise 40 per cent in this Parliament, at least at the bottom rungs of the ladder, but equally one suspects via differential maintenance further up the ladder too.

This is a game changer.

Interest rates are at all-time lows and can’t get much lower, so it’s possibly a good time to borrow and lock in low costs. With inflation below zero, wages on the up and billions of pounds of quantitative easing to unwind, we should expect an inflation backlash.

Consumer confidence is also high and rising and unemployment is falling.

It seems the key issue for us is that productivity has fallen way back; something to worry about because this determines our ability to afford ourselves.

The Eurozone is by contrast suffering. Without Germany it would have a staggering 13 per cent unemployment compared to five per cent here. Unemployment is so extreme that nearly 50 per cent of young people in Spain are on the dole. Leaving aside the emerging collapse of free movement of people and the Euro and Greek crises, its GDP will not recover to 2008 levels until 2020; it already has negative interest rates.

A betting man might wager that the Euro will need to weaken against the dollar after its recent period of relative strength.

China now has more billionaires than America, Volvo is now owned by the Chinese and there are over 100 million middle class Chinese with assets between approximately £50,000 and £500,000?

It has 160 cities with a polulation of more than one million people. Compare that to just nine in the USA.

It has well over twice the internet users of the USA, bought nearly 24 million cars last year and the RMB is now the fourth most traded currency on the globe.

It is no wonder we offered the Chinese President afternoon tea at Chequers.